B is for Bifurcate, which is a complicated word for a simple process.
When you bifurcate a claim, you split it into a secured portion and an unsecured portion. Unsecured creditors in Chapter 13 are not paid interest. By bifurcating a claim, you can substantially reduce the amount you have to pay for certain items.
Here is an Example of Claim Bifurcation
Let’s look at an example. You are filing a chapter 13 case. You purchased a vehicle and financed it more than 910 days ago. The debt owed on the vehicle at the time you file your case is $20,000. The vehicle has been wrecked, has high mileage, and some mechanical problems. The NADA retail value for the vehicle is $10,000. In your chapter 13 case, you can split the claim into a $10,000 secured portion and a $10,000 unsecured portion. Only the secured portion will receive interest. The unsecured portion will be discharged at the end of your case with the remainder of your unsecured creditors.
Interest Rate set by the Court
The interest rate that you will have to pay is determined by the Bankruptcy Court. Most Bankruptcy Courts add 2 points to the prime lending rate at the time of the filing of the case. For Bankruptcy Debtors who have high interest rate loans, the ability to split the claim and pay a lower interest rate allows them to experience significant savings through their Bankruptcy Case.
Only Certain claims can be bifurcated
Not all secured claims can be bifurcated. For instance, you cannot bifurcate a claim secured only by real estate that is your primary residence. Additionally, you cannot bifurcate a creditor’s claim if you have not had the vehicle for more than 910 days unless the loan is a refinance of the vehicle. With a vehicle loan, you can reduce the interest rate even if you cannot bifurcate the claim. Bifurcating a creditor’s claim, when it is an available option, can substantially benefit you in your case. Your Tuscaloosa and Birmingham Bankruptcy Lawyer can help you determine if bifurcating a creditor’s claim is an available option and how much it can help you in your case.
More Information about “The ABC’s of Bankruptcy.”
Attorneys from around the United States are taking part in “The ABC’s of Bankruptcy.” Check out these other blog posts for the letter “B.”
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I read your blog “B is for Bifurcate” and have a question. You stated one cannot bifurcate a mortgage on a personal residence. What if the total value of a first mortgage plus the amount of a second mortgage is greater than the value of the house. Can the second mortgage be bifurcated into secured up to the value of the house, and then unsecured for the portion in excess of the house value? Example:first mortgage $75.00; second mortgage $50.00; total value of the house $100.00. First mortgage of $75.00 fully secured. 2nd mortgage $25.00 secured and $25.00 unsecured?
Sorry, I approved your comment bud did not see the question included. The answer is no, except as follows: if the 2nd mortgage has any level of security, even one dollar, then it cannot be stripped off. It is a little different from bifurcation, however, because you can actually remove a lien that is totally unsecured on real estate. So, if the first is $100,000 and the value of the real estate is $100,0001 or more, then a second mortgage would be totally unsecured. As such, it would be subject to being stripped off through a chapter 13 case. But, it is not a bifurcation and there cannot be any value to attach the junior lien for a bankruptcy court to be able to enter an order on it. It generally would require a 2 step process: First, a Motion to Value to get the court to determine that the claim is unsecured; and Second, an adversary proceeding to actually strip the mortgage or lien off of the real estate.